7 News Belize

Introducing Superbond 2.0
posted (August 8, 2012)
Is the world ready for Superbond 2.0? Well it better be because the Government of Belize launched its best offer on the Central Bank Website today. It's called the "Indicative Restructuring Scenarios" and the three page document outlines three scenarios for holders of the Superbond. First, some background: We already told you that at the end of June, that same Central Bank Website had posted an "Economic Brief" basically making the case that with falling oil revenues and looming compensation, Government can't afford to continue servicing the Superbond.

Well now, a month a and a half later - these scenarios outline what the Government says it can afford - and all three scenarios represent a loss to bondholders - but major savings for taxpayers.

"Scenario A" is a 50 year bond at a flat 2% coupon rate with a 15 year grace period - the original Superbond was for 22 years at much higher, stepped-up coupon rates.

"Scenario B" proposes a principal haircut of 45% - and is a 30 year bond with varying interest rates and no grace period.

"Scenario C" - very much like B, proposes that 45% principal haircut, with a five year grace period at 3.5% interest on a 30 year bond.

Now if the only haircuts you know about are the ones you get at a barbershop - well, join the club.

The bottom line? Bondholders - in general - would lose about a quarter of what's called net present value, amounting to savings of millions of dollars for government. We say "in general" because some bondholders bought the bonds on the cheap - and their losses would be less.

But right now government is paying about 93 million dollars in interest annually, on a stepped up coupon rate of 8.5%.

Under one of the new scenarios, that interest rate would go to 3.5% on a principal figure that is 45% less - translating into huge savings for the public purse.

But, that's the proposal. Now that these scenarios have been sent out to the world - bondholders will react - and probably many of them in anger - because they don't want to lose the value of their bonds.

And that's what will make the next 12 days interesting: because Belize's next bi-annual superbond payment is due on August 20th. Will Belize make the payment? Well it's budgeted, but even so it will be a stretch for government.

We'll keep monitoring developments closely in the days to come.

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